Friday, October 10, 2008

Global Financial Crisis and Its Effects in Asia

Panic Attack As Investors Sell Off Shares at Any Price

Hell in Asia - Panic Attack As Investors Sell Off Shares at Any Price. This was the headline in the Straits Times that I woke up to on Thursday morning. The previous day's trading amounted to a sell-off in Asian markets, despite the coordinated rate cuts in the US, Europe and China. Herd mentality had set in - fearful retail investors (the bag holders mainly) rushed to stem their losses. So while the headline might have been shocking to those not following the financial news, the sell-off reaction in Asia was actually anticipated and in accordance to technical analysis.

When the newspapers start their massive moanings, and everyone is talking about the stockmarket, then expect there to be a rebounding in the markets. It will happen in the US first, then followed by the Asian markets (which will react accordingly as they usually do).

Now having said that (savvy traders actually trade in the up and down swings of the market, and make money doing so) , this financial crisis (mainly the problem with the availibility of credit for economic sustenance and growth) is not something that will easily be sorted out.

Small businesses will suffer because of the slowdown in consumer spending. Americans caught up in debt, are not likely to spur the economy any longer by buying items they do not really need - be it furniture to plasma tvs. Asian imports will decline, and their profits will decline leading to a slowdown in Asia. Asian jobs will be lost, and smaller business will find it harder to expand as credit have all dried up. No jobs, no income, no buying power....See where that leads to....

But some people are actually hoping that the markets will go down futher, so they can do bottom-fishing - that is, buying up expensive items, such as property or formerly high priced stocks at low prices. One writer from the Today newspaper quipped that she wants "a sharp enough drop so that her dreams are within reach". She called this a "slight correction". She also wrote that she felt no sympathy for those hit by the credit crunch because they are the ones who had earned loads of money for taking risks with other people's money. In her opinion, it's fitting that they pay the price.

Ok, she may be able to bottom-fish for property (in certain sectors). If I had more money, I would be buying into property too. And hold it for long-term, and forget about double digit growth that we got used to in the 90s. And definitely forget about bottom-fishing stocks unless one really knows how to read the fundamentals of a company. Too often people buy stocks on the way down, thinking they are getting a deal, and those companies never recover, and the investors who bought the stocks at a seemingly bargain price are left holding an empty bag.

But never mind all of that, let's go back to the Today writer. She chooses to avoid the bigger picture, which is far more dire. A protracted financial downturn will affect everyone - we saw a prelude just months ago with oil and rice price increases, and the effect it had on the poorer people in this world.

The hedge fund managers, bankers and the rich (those people the Today writer was scoffing at) will manage somehow. The rest of us will also manage by tightening our belts and reducing our spending. We will make different lifestyle choices - eat in, instead of out at a fancy restaurant; shop only when necessary; drive less etc.

But it's a different story for the poor who are already struggling to make ends meet. Increases in food prices can literally make a difference between life and death.

It's those people I am thinking about. And that's why I hope there is NO sharp drop that shakes the markets. A sharp drop is not a slight correction. When there was a sharp drop in 1929, it started the Great Depression, which lasted for years leading to misery for many people. The global consequences of such a drop would have far-reaching adverse impact given the connectivity of our economies today.

Would you want that to happen just so your dreams are within reach? Shame on that Today writer for such irresponsible hopes.

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